Published: 25/06/2021

The potential annual carbon costs per household in the EU27 is estimated at EUR 373 for transport and EUR 429 for residential buildings.

What should be done to make the extension economically effective and socially viable

Several tools and actions should be implemented if carbon pricing is extended to road transport and buildings. They include offering revenue recycling schemes to assist vulnerable people. For residential buildings, this could consist of transfer payments, direct energy bill assistance or targeted energy efficiency programmes for the poorest households. In the transport sector, revenues can be recycled by providing consumer rebates for low-carbon and electric vehicles and tax breaks for lower-income households to offset the increase in fuel prices due to carbon pricing.

Secondly, we recommend implementing new energy efficiency and renewable energy policies and improving existing ones, as well as legislation specifically targeting the residential building and transport sectors, which has the potential to accelerate the use of renewable energy solutions and lower energy demand, thus putting downward pressure on equilibrium EUA prices. To that end, EU tools, such as the solidarity mechanism that redistributes resources in favour of poorer member states, should be maintained and strengthened. With this, it should be required that 100% of the revenues generated by solidarity allowances be spent on energy and climate purpose. The extension of carbon pricing to new hard to abate sectors makes the strengthening of the Innovation and Modernisation Funds even more important, both to offset the carbon price impact on households and to facilitate the uptake of innovative clean technologies.